1.
Accounting For Partnership
Firms Fundamentals
Prasanth.S.R
M.Com., M.Ed., NET
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index

2.
CONTENTS
• Meaning of Partnership
• Definition of Partnership
• Features of Partnership
• Partnership Deed
• Contents Of The Partnership Deed.
• Rules Applicable in the Absence of Partnership Deed.
• Partnership Accounts.
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3.
Meaning of Partnership
Partnership is an extension of the sole-
proprietary concern. A Partnership is a business
carried on by two or more persons. They join hands
together on the basis of an agreements, pool their
resources and run a lawful business. The main aim
of such a business is to earn profit to share it
among themselves. In India partnership business is
governed by the Indian Partnership Act 1932.
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4.
Definition of Partnership
According to the Section 4 of the Indian
Partnership Act 1932, Partnership may be defined
as “ the relationship between persons who have
agreed to share the profits of a business carried on
by all or any of them acting for all”.
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Definitions

5.
Features of Partnership
1. Number of Persons
A minimum of two persons are required to form a
partnership. There is a limit on maximum number of persons
which constitute a partnership firm. The maximum number is
10 in the case of a firm carrying on a banking business and 50
if it is engaged in any other business.
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6.
Features of Partnership….
2. Agreement / Deed
A partnership is the result of an agreement
between two or more persons. The agreement may
be written or oral. The written agreement is known
as partnership deed.
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7.
Features of Partnership….
3. Business
The partners should carry some
business and should be some lawful
business.
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8.
Features of Partnership….
4. Sharing of Profits
The purpose of partnership must be to
earn profit. The profit should be shared by the
partners in agreed ratio. If there is no specific
agreement in this regard, partners will share the
profits equally.
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9.
Features of Partnership….
5. Utmost Good Faith
‘Good Faith’ is the essence of a
partnership. Hence each partner
should be just and faithful to another.
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10.
Features of Partnership….
6. Unlimited Liability
Liability of each partner is
unlimited . It means that partners are
individually and collectively liable for all
debts of the firm.
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11.
Features of Partnership….
7. No Separate Legal Existence
A partnership is not a legal entity . It has no separate legal
existence apart from the partners.
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12.
Partnership Deed
Partnership is the result of an agreement
between two or more persons. The agreement may
be oral or written. When the agreement is in
written form it is known as partnership deed. It
may be defined as “A document containing the
terms of partnership as agreed by the partners is
called ‘Partnership Deed’ or ‘Articles of
Partnership’.
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Partnership Deed
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13.
Contents of Partnership Deed
 Name of the firm
 Name and addresses of all partners.
 Nature and place of business.
 Date of commencement of partnership.
 Duration of Partnership , if any
 Capital contribution by the partners.
 The amount Which can be withdrawn by each
partner.
 Rules regarding operation of bank accounts.
 Division of profit or loss.
 Interest on capital / drawings.
 Interest in partner’s loan.
 Salaries, commission , etc. if payable to any
partner.
 Details of division of work among the partners.
 Ascertainment of goodwill on admission,
retirement & death of a partner.
 Settlement of accounts on retirement or death of
a partner and on dissolution of a firm.
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14.
Rules Applicable in the Absence of
Partnership Deed
Normally a partnership deed includes all matters relating to the
mutual relationship amongst partners. But in certain cases there will no
such an express agreement . In such cases the partners have to follow the
following provisions in their business.
1.Profit Sharing : Partners are entitled to share equally the profits and
losses of the firm , irrespective of their capital contribution.
2. Interest on Capital : Partners are not entitled to interest on capital. But if
there is any agreement for providing interest on capital , such interest is payable
only out of the profit of the business. If there is loss interest on capital need not
be allowed. home

15.
Rules Applicable in the Absence of
Partnership Deed
3. Interest on Loan / Advances : If any partner has advanced some money to the
firm in addition to his capital then he will be entitled to get an interest on the
amount at the rate of 6 % per annum even if there are losses.
4.Interest on Drawings : No interest will be charged on drawings made by the
partners.
5. Remuneration to Partners : Partners are not entitled to any salary or other
remuneration.
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